Contrast revealed in volatility strategies

Published 26 May 16

Four dairy companies addressed the theme ‘managing the extremes of dairy market volatility’ at this year’s Dairy Industry Newsletter conference. All had a common strategy for reducing exposure to market volatility, but differed in how they extended this to cover their farmer suppliers.

Ornua Foods, Arla Foods, Müller Milk & Ingredients, and Glanbia Ingredients were all focussed on creating opportunities to improve and protect the value of milk. Strategies to minimise the impacts of the highs and lows of commodity cycles were identified as:

Investing in brands and value added products to improve margins

diversifying into a range of products and markets

investing to increase scale and improve efficiencies.

The two large Irish co-operatives were unique however in their approach to extend volatility management to the farm level. Both Ornua and Glanbia have developed tools to help farmers through periods of low pricing. Ornua is investing in dairy trading strategies in order to increase the stability of milk pricing and extend fixed milk price systems. Glanbia, in addition to offering fixed milk price schemes, has recently launched a low cost and flexible loan programme, ‘MilkFlex’. The programme provides farmers with access to capital linked to milk price cycles (more detail on this scheme can be found here), allowing them to alter payments according to changes in revenues.